Beacon Residential Community Ass'n v. Skidmore, Owings & Merrill LLP

Filed 7/3/14

IN THE SUPREME COURT OF CALIFORNIA

BEACON RESIDENTIAL COMMUNITY )

ASSOCIATION, )

)

Plaintiff and Appellant, )

) S208173

v. )

) Ct.App. 1/5 A134542

SKIDMORE, OWINGS & MERRILL LLP )

et al., )

) San Francisco County

Defendants and Respondents. ) Super. Ct. No. CGC-08-478453

____________________________________)

A homeowners association on behalf of its members sued a condominium

developer and various other parties over construction design defects that allegedly

make the homes unsafe and uninhabitable for significant portions of the year.

Two defendants were architectural firms, which allegedly designed the homes in a

negligent manner but did not make the final decisions regarding how the homes

would be built. Applying our decision in Bily v. Arthur Young & Co. (1992) 3

Cal.4th 370 (Bily) and relying on Weseloh Family Ltd. Partnership v. K.L. Wessel

Construction Co., Inc. (2004) 125 Cal.App.4th 152 (Weseloh), the trial court

sustained a demurrer in favor of the defendant architectural firms, reasoning that

an architect who makes recommendations but not final decisions on construction

owes no duty of care to future homeowners with whom it has no contractual

relationship. The Court of Appeal reversed, concluding that an architect owes a

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duty of care to homeowners in these circumstances, both under the common law

and under the Right to Repair Act (Civ. Code, § 895 et seq.).

Building on substantial case law and the common law principles on which

it is based, we hold that an architect owes a duty of care to future homeowners in

the design of a residential building where, as here, the architect is a principal

architect on the project — that is, the architect, in providing professional design

services, is not subordinate to other design professionals. The duty of care extends

to such architects even when they do not actually build the project or exercise

ultimate control over construction. Accordingly, we affirm the judgment of the

Court of Appeal.

I.

In considering whether a demurrer should have been sustained, ―we accept

as true the well-pleaded facts in the operative complaint.‖ (Aryeh v. Canon

Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1189, fn. 1.) The facts alleged in

plaintiffs‘ third amended complaint (the complaint) are as follows.

Skidmore, Owings & Merrill LLP (SOM) and HKS, Inc. (individually and

doing business as HKS Architects, Inc.; hereafter HKS), are design professionals.

SOM and HKS (collectively defendants) provided architectural and engineering

services for The Beacon residential condominiums, a collection of 595

condominium units and associated common areas located in San Francisco (the

Project). Although the units were initially rented out for two years after

construction, defendants provided their services knowing that the finished

construction would be sold as condominiums. A condominium association was

formed, and the condominium‘s conditions, covenants, and restrictions were

recorded, before construction commenced.

The homeowners association, plaintiff Beacon Residential Community

Association (Association), sued several parties involved in the construction of

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those condominiums, including several business entities designated as the original

owners and developers of the condominium, as well as SOM and HKS, with

whom the owners and developers contracted for architectural services. SOM and

HKS were the only architects on the Project. Plaintiff alleged that negligent

architectural design work performed by defendants resulted in several defects,

including extensive water infiltration, inadequate fire separations, structural

cracks, and other safety hazards. One of the principal defects is ―solar heat gain,‖

which made the condominium units uninhabitable and unsafe during certain

periods due to high temperatures. Plaintiff alleged that the solar heat gain is due to

defendants‘ approval, contrary to state and local building codes, of less expensive,

substandard windows and a building design that lacked adequate ventilation.

Defendants are named in the first cause of action (―Civil Code Title 7—Violation

of Statutory Building Standards for Original Construction‖), the second cause of

action (―Negligence Per Se in Violation of Statute‖), and the fifth cause of action

(―Negligence of Design Professionals and Contractors‖).

According to the complaint, defendants ―provided architectural and

engineering services‖ for the Project that ―included, but were not limited to,

architecture, landscape architecture, civil engineering, mechanical engineering,

structural engineering, soils engineering and electrical engineering, as well as

construction administration and construction contract management.‖ Defendants

were paid more than $5 million for their work on the Project. In addition to

―providing original design services at the outset‖ of the Project, defendants played

an active role throughout the construction process, coordinating efforts of the

design and construction teams, conducting weekly site visits and inspections,

recommending design revisions as needed, and monitoring compliance with

design plans.

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Defendants demurred, contending they owed no duty of care to the

Association or its members under the facts alleged. The trial court agreed: ―The

allegations do not show that either of the architects went beyond the typical role of

an architect, which is to make recommendations to the owner. Even if the

architect initiated the substitutions, changes, and other elements of design that

Plaintiff alleges to be the cause of serious defects, so long as the final decision

rested with the owner, there is no duty owed by the architect to the future

condominium owners, in the Court‘s view. The owner made the final decision

according to the third amended complaint.‖ The trial court granted plaintiff leave

to amend the complaint to allege that defendants ―actually dictated and controlled

the decision to eliminate [ventilation] ducts, acting in a manner that was contrary

to the directions of the owner, or that ignored the owner‘s directions,‖ but plaintiff

declined.

The Court of Appeal reversed. It applied the factors set forth by this court

in Biakanja v. Irving (1958) 49 Cal.2d 647, 650 (Biakanja), for determining

whether a party owes a duty of care to a third party and concluded that defendants

owed a duty of care to the Association in this case. The court distinguished

Weseloh, supra, 125 Cal.App.4th 152, a case that found no duty of care owed by a

design engineer to a commercial property owner, on the grounds that Weseloh was

decided on summary judgment rather than demurrer and that Weseloh had

expressly limited its holding to its facts. The Court of Appeal further concluded

that Bily, supra, 3 Cal.4th 370, did not support defendants‘ position. Finally, the

court concluded that the Right to Repair Act expressed a legislative intent to

impose on design professionals a duty of care to future homeowners. (See Civ.

Code, § 895 et seq.)

We granted review.

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II.

―Actionable negligence involves a legal duty to use due care, a breach of

such legal duty, and the breach as the proximate or legal cause of the resulting

injury.‖ (United States Liab. Ins. Co. v. Haidinger–Hayes, Inc. (1970) 1 Cal.3d

586, 594.) This case is concerned solely with the first element of negligence, the

duty of care. Whether a duty of care exists ―in a particular case is a question of

law to be resolved by the court. [Citation.] [¶] A judicial conclusion that a duty is

present or absent is merely ‗ ―a shorthand statement . . . rather than an aid to

analysis . . . . ‗[D]uty,‘ is not sacrosanct in itself, but only an expression of the

sum total of those considerations of policy which lead the law to say that the

particular plaintiff is entitled to protection.‖ ‘ [Citation.] ‗Courts, however, have

invoked the concept of duty to limit generally ―the otherwise potentially infinite

liability which would follow from every negligent act . . . .‖ ‘ ‖ (Bily, supra, 3

Cal.4th at p. 397.)

Here we consider whether design professionals owe a duty of care to a

homeowners association and its members in the absence of privity. Although the

issue presented in this case has not been decided by this court, we do not write on

a blank slate. As explained below, courts have found in a variety of circumstances

that builders, contractors, and architects owe a duty of care to third parties.

A.

Although liability for the supply of goods and services historically required

privity of contract between the supplier and the injured party, the significance of

privity has been greatly eroded over the past century. As we noted more than 50

years ago, ―[l]iability has been imposed, in the absence of privity, upon suppliers

of goods and services which, if negligently made or rendered, are ‗reasonably

certain to place life and limb in peril.‘ [Citations.] There is also authority for the

imposition of liability where there is no privity and where the only foreseeable risk

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is of damage to tangible property. [Citations.]‖ (Biakanja, supra, 49 Cal.2d at

p. 649.) In Biakanja, we held that a notary public who negligently drafted a will

was liable to the intended beneficiary of the will. (Id. at pp. 650–651.) We

explained that ―[t]he determination whether in a specific case the defendant will be

held liable to a third person not in privity is a matter of policy and involves the

balancing of various factors, among which are the extent to which the transaction

was intended to affect the plaintiff, the foreseeability of harm to him, the degree of

certainty that the plaintiff suffered injury, the closeness of the connection between

the defendant‘s conduct and the injury suffered, the moral blame attached to the

defendant‘s conduct, and the policy of preventing future harm.‖ (Id. at p. 650.)

The declining significance of privity has found its way into construction

law. We described the evolution in Aas v. Superior Court (2000) 24 Cal.4th 627

(Aas): ―Formerly, after a builder had completed a structure and the purchaser had

accepted it, the builder was not liable to a third party for damages suffered because

of the work‘s condition, even though the builder was negligent. (E.g., Fanjoy v.

Seales (1865) 29 Cal. 243, 249–250; see also Hale v. Depaoli [(1948)] 33 Cal.2d

228, 230 [reviewing the former law].) The purchaser, of course, had remedies

against the builder in contract and warranty. But injured third parties had no clear

remedy until we, following the trend that began with MacPherson v. Buick Motor

Co. (1916) 217 N.Y 382 [111 N.E. 1050], qualified the general rule exonerating

manufacturers from third party claims with an exception applicable whenever

‗ ―the nature of a [manufactured] thing is such that it is reasonably certain to place

life and limb in peril when negligently made . . . .‖ ‘ (Kalash v. Los Angeles

Ladder Co. (1934) 1 Cal.2d 229, 231–232, quoting MacPherson v. Buick Motor

Co., supra, 111 N.E. 1050, 1053.) Having already held that the manufacturers of

defective ladders [citation], elevators [citation], and tires [citation] could be liable

to persons not in contractual privity with them yet foreseeably injured by their

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products, we easily applied the same rule to someone responsible for part of a

house, i.e., a defective railing (Hale v. Depaoli, at pp. 230–232).

―We first recognized a remedy in the law of negligence for construction

defects causing property damage, as opposed to personal injury, in Stewart v. Cox

[(1961)] 55 Cal.2d 857 [(Stewart)]. There, we upheld a homeowner‘s judgment

against a subcontractor who had negligently applied concrete to the inside of a

swimming pool, thereby causing the release of water that damaged the pool, lot

and house. In our opinion we noted, and seemingly were influenced by, the

‗ ―decisions . . . plac[ing] building contractors on the same footing as sellers of

goods, and . . . [holding] them to the general standard of reasonable care for the

protection of anyone who may foreseeably be endangered by the negligence, even

after acceptance of the work.‖ ‘ (Id. at p. 862, quoting Prosser, Torts (2d ed. 1955)

pp. 517–519.)‖ (Aas, supra, 24 Cal.4th at p. 637.)

The court in Stewart applied the Biakanja factors to determine the scope of

the duty of care: ―Here it was obvious that the pool for which Cox provided the

gunite work was intended for the plaintiffs and that property damage to them ––

and possibly to some of their neighbors –– was foreseeable in the event the work

was so negligently done as to permit water to escape. It is clear that the

transaction between [the pool subcontractor] and Cox was intended to specially

affect plaintiffs. There is no doubt that plaintiffs suffered serious damage, and the

court found, supported by ample evidence, that the injury was caused by Cox‘s

negligence. Under all the circumstances Cox should not be exempted from

liability if negligence on his part was the proximate cause of the damage to

plaintiffs.‖ (Stewart, supra, 55 Cal.2d at p. 863.)

Soon after, in Sabella v. Wisler (1963) 59 Cal.2d 21, we held that a

contractor was liable to a homeowner, although the homeowner‘s identity was

unknown at the time of construction. The contractor had built a house on

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inadequately compacted soil, causing major subsidence and property damage.

Applying the Biakanja factors, we said that although ―it appears that . . . this house

was not constructed with the intention of ownership passing to these particular

plaintiffs, the Sabellas are members of the class of prospective home buyers for

which Wisler admittedly built the dwelling. Thus as a matter of legal effect the

home may be considered to have been intended for the plaintiffs, and Wisler owed

them a duty of care in construction. (See Prosser, Torts (2d ed. 1955) § 36,

pp. 166–168.) It is apparent that harm was foreseeable to prospective owners

when the home was constructed upon the inadequately compacted earth in the lot,

and it is undisputed that the Sabellas‘ home was seriously damaged. Also, there

was found to be a close connection between the negligent elements of

workmanship for which defendant contractor must be held responsible . . . and the

injury suffered.‖ (Sabella, at p. 28.)

Courts have applied these third party liability principles to architects. In

Montijo v. Swift (1963) 219 Cal.App.2d 351, the plaintiff sued an architect after

falling and injuring herself on a stairway at a bus depot that she alleged had been

negligently designed with an inadequate handrail. Relying in part on Stewart,

supra, 55 Cal.2d 857, and Hale v. Depaoli, supra, 33 Cal.3d 228, the court said:

―Under the existing status of the law, an architect who plans and supervises

construction work, as an independent contractor, is under a duty to exercise

ordinary care in the course thereof for the protection of any person who

foreseeably and with reasonable certainty may be injured by his failure to do so,

even though such injury may occur after his work has been accepted by the person

engaging his services.‖ (Montijo, at p. 353.) Similarly, in Mallow v. Tucker,

Sadler & Bennett (1966) 245 Cal.App.2d 700, the court upheld an architect‘s

liability to a construction worker where the architect‘s plans negligently failed to

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indicate the location of underground high-voltage transmission lines, resulting in

the worker‘s electrocution. (Id. at pp. 702–703.)

Architect liability to third parties has not been confined to personal injury;

it also extends to property damage. The Court of Appeal in Cooper v. Jevne

(1976) 56 Cal.App.3d 860, perhaps the case most similar to the one before us,

recognized such liability to condominium purchasers where an architectural firm

―prepared and furnished to the builder-seller . . . architectural drawings and plans

and specifications for the construction and other improvements within the . . .

project and acted as supervising architects in the construction of the buildings

within the project.‖ (Id. at p. 867.) Applying the Biakanja factors, Cooper held

on demurrer that ―the architects‘ duty of reasonable care in the performance of

their professional services is logically owed to those who purchased the allegedly

defectively designed and built condominiums . . . . The architects must have

known that the condominiums they designed and whose construction they

supervised were built by [the builder-seller] for sale to the public and that

purchasers of these condominiums would be the ones who would suffer

economically, if not bodily, from any negligence by the architects in the

performance of their professional services.‖ (Id. at p. 869.)

Similarly, in Huang v. Garner (1984) 157 Cal.App.3d 404, the Court of

Appeal overturned a nonsuit in an action by a property owner against a building

designer and civil engineer for defective design, including insufficient fire

retardation walls, that violated building code standards. (Id. at pp. 411–415.) The

court took as a given that design professionals could be held liable to third parties

for defective designs causing property damage and economic loss; the only issue

was whether negligence had to be proven by expert testimony or could be

established by showing departure from then Uniform Building Code requirements

as negligence per se. (Id. at pp. 411–414.) In Huber, Hunt Nichols, Inc. v. Moore

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(1977) 67 Cal.App.3d 278, the court said it is ―now well settled that . . . the

architect may be sued for negligence in the preparations of plans and

specifications either by his client or by third persons . . . .‖ (Id. at p. 299.)

B.

The Association argues that the general principle that an architect may be

sued in negligence by a future homeowner absent privity is also recognized by

statute. The Right to Repair Act establishes a set of building standards for new

residential construction and provides that builders and other entities ―shall . . . be

liable for‖ violation of those standards ―[i]n any action seeking recovery of

damages arising out of‖ such construction. (Civ. Code, § 896; see also id., § 936;

all subsequent statutory references are to this code.) Section 896 states that the

deficiencies for which builders and other entities are liable include ―the residential

construction, design, specifications, surveying, planning, supervision, testing, or

observation of construction‖ of a dwelling unit. The Association points to section

936, which provides in part: ―Each and every provision of the other chapters of

this title apply to general contractors, subcontractors, material suppliers, individual

product manufacturers, and design professionals to the extent that the general

contractors, subcontractors, material suppliers, individual product manufacturers,

and design professionals caused, in whole or in part, a violation of a particular

standard as the result of a negligent act or omission or a breach of contract. In

addition to the affirmative defenses set forth in Section 945.5, a general contractor,

subcontractor, material supplier, design professional, individual product

manufacturer, or other entity may also offer common law and contractual defenses

as applicable to any claimed violation of a standard.‖ (Italics added.) Section 937

makes clear that the term ―design professionals‖ includes ―architects and

architecture firms.‖

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The Court of Appeal, relying on legislative history, concluded that the

Right to Repair Act is ―dispositive of the scope of duty‖ owed by defendants to the

homeowners in this case. Defendants make several arguments against this

position. First, they observe that whereas the act applies to ―new residential

units,‖ the residential units in the Project were initially rented as apartments.

Second, defendants contend that even if the Right to Repair Act applies to this

case, it does not support imposing a duty of care toward the Association‘s

members greater than the duty imposed at common law. Highlighting the portion

of section 936 that preserves ―common law . . . defenses,‖ defendants argue that

that under common law principles of duty articulated by this court, a design

professional owes no duty of care to homeowners in the circumstances of this

case. Defendants further rely on the established principle that ―[a] statute will be

construed in light of common law decisions, unless its language ‗ ―clearly and

unequivocally discloses an intention to depart from, alter, or abrogate the

common-law rule concerning a particular subject matter . . . .‖ ‘ ‖ (California

Assn. of Health Facilities v. Department of Health Services (1997) 16 Cal.4th 284,

297.) According to defendants, the Legislature‘s limited purpose in enacting the

Right to Repair Act in 2002 was to abrogate the ―economic loss rule‖ affirmed in

Aas, supra, 24 Cal.4th 627, 636 (see Greystone Homes, Inc. v. Midtec, Inc. (2008)

168 Cal.App.4th 1194, 1202 (Greystone)), not to otherwise create new tort duties.

We need not decide whether the Right to Repair Act is itself dispositive of

the issue before us. Assuming defendants are correct that the existence of a

common law duty of care is required to maintain a negligence action under the

statute, such a duty exists under the facts alleged here. This conclusion follows

from an application of Biakanja and Bily, as we now explain.

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III.

As noted, Biakanja set forth a list of factors that inform whether a duty of

care exists between a plaintiff and defendant in the absence of privity: ―the extent

to which the transaction was intended to affect the plaintiff, the foreseeability of

harm to him, the degree of certainty that the plaintiff suffered injury, the closeness

of the connection between the defendant‘s conduct and the injury suffered, the

moral blame attached to the defendant‘s conduct, and the policy of preventing

future harm.‖ (Biakanja, supra, 49 Cal.2d at p. 650.) Although the application of

these factors necessarily depends on the circumstances of each case, it is possible

to derive general rules that govern common scenarios. An example is our decision

in Bily limiting the duty of care owed by auditing firms to nonclient third parties.

We begin here with a review of Bily, whose reasoning provides a useful point of

comparison. We then discuss the key considerations that counsel in favor of

recognizing a duty of care that design professionals owe to future homeowners in

circumstances like those alleged in plaintiff‘s complaint.

A.

Bily involved a suit brought by investors in a computer company against the

accounting firm that the company had hired to conduct an audit and issue audit

reports and financial statements. The plaintiffs claimed that the accounting firm,

Arthur Young & Company, had committed negligence in conducting the audit and

reporting a $69,000 operating profit rather than the company‘s actual loss of more

than $3 million. The computer company eventually filed for bankruptcy, and its

investors lost money. They sued, claiming injury from reliance on Arthur

Young‘s allegedly negligent audit. (Bily, supra, 3 Cal.4th at pp. 377–379.)

We held that an auditor generally owes no duty of care to its client‘s

investors. (Bily, supra, 3 Cal.4th at p. 407.) In so holding, we recognized the

important ― ‗ ―public watchdog‖ function‘ ‖ of auditors (id. at p. 383) but sought

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to set a reasonable limit on their potential liability for professional negligence

given the vast range of foreseeable third party users of audit reports. ―Viewing the

problem . . . in light of the [Biakanja] factors,‖ the court in Bily focused on ―three

central concerns.‖ (Id. at p. 398.)

First, ―[g]iven the secondary ‗watchdog‘ role of the auditor, the complexity

of the professional opinions rendered in audit reports, and the difficult and

potentially tenuous causal relationships between audit reports and economic losses

from investment and credit decisions, the auditor exposed to negligence claims

from all foreseeable third parties faces potential liability far out of proportion to its

fault . . . .‖ (Bily, supra, 3 Cal.4th at p. 398.) In elaborating on this concern, the

court observed that ―audits are performed in a client-controlled environment.‖ (Id.

at p. 399.) The client ―necessarily furnishes the information base for the audit,‖

―has interests in the audit that may not be consonant with those of the public,‖ and

―predominates in the dissemination of the audit report.‖ (Id. at pp. 399–400.)

―Thus, regardless of the efforts of the auditor, the client retains effective primary

control of the financial reporting process.‖ (Id. at p. 400.)

In addition, the court noted a mismatch between the auditor‘s ―secondary‖

role in the financial reporting process and the ―primary‖ role attributed to the

auditor as the cause of economic loss in a negligence suit by a third party. (Bily,

supra, 3 Cal.4th at p. 400.) Because ―the auditor may never have been aware of

the existence, let alone the nature or scope, of the third party transaction that

resulted in the claim‖ (ibid.), and because ―the ultimate decision to lend or invest

is often based on numerous business factors that have little to do with the audit

report,‖ the auditor‘s conduct lacks a sufficiently ― ‗close connection‘ ‖ to the loss

of loaned or invested funds to justify recognition of a duty of care to third parties

(id. at p. 401). In this context, ―the spectre of multibillion-dollar professional

liability . . . is distinctly out of proportion to: (1) the fault of the auditor . . . ; and

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(2) the connection between the auditor‘s conduct and the third party‘s injury . . . .‖

(Bily, at p. 402.)

Second, Bily emphasized that unlike ordinary consumers in product liability

cases, ―the generally more sophisticated class of plaintiffs in auditor liability cases

(e.g., business lenders and investors) permits the effective use of contract rather

than tort liability to control and adjust the relevant risks through ‗private ordering‘

. . . .‖ (Bily, supra, 3 Cal.4th at p. 398.) ―For example, a third party might expend

its own resources to verify the client‘s financial statements or selected portions of

them that were particularly material to its transaction with the client. Or it might

commission its own audit or investigation, thus establishing privity between itself

and an auditor or investigator to whom it could look for protection. In addition, it

might bargain with the client for special security or improved terms in a credit or

investment transaction. Finally, the third party could . . . insist[] that an audit be

conducted on its behalf or establish[] direct communications with the auditor with

respect to its transaction with the client.‖ (Id. at p. 403.) ―As a matter of

economic and social policy, third parties should be encouraged to rely on their

own prudence, diligence, and contracting power, as well as other informational

tools. This kind of self-reliance promotes sound investment and credit practices

and discourages the careless use of monetary resources. If, instead, third parties

are simply permitted to recover from the auditor for mistakes in the client‘s

financial statements, the auditor becomes, in effect, an insurer of not only the

financial statements, but of bad loans and investments in general.‖ (Ibid.)

Third, Bily expressed skepticism that exposing auditors to third party

negligence suits would improve the quality of the audits. (Bily, supra, 3 Cal.4th at

pp. 404–405.) ―In view of the inherent dependence of the auditor on the client and

the labor-intensive nature of auditing, we doubt whether audits can be done in

ways that would yield significantly greater accuracy without disadvantages.

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[Citation.] Auditors may rationally respond to increased liability by simply

reducing audit services in fledgling industries where the business failure rate is

high, reasoning that they will inevitably be singled out and sued when their client

goes into bankruptcy regardless of the care or detail of their audits.‖ (Id. at

p. 404.)

Notably, Bily did not categorically hold that auditors never owe a duty of

care to third parties. Instead, Bily limited the duty to a ―narrow class of persons

who, although not clients, may reasonably come to receive and rely on an audit

report and whose existence constitutes a risk of audit reporting that may fairly be

imposed on the auditor. Such persons are specifically intended beneficiaries of the

audit report who are known to the auditor and for whose benefit it renders the

audit report.‖ (Bily, supra, 3 Cal.4th at pp. 406–407.) In situations where an

auditor ―clearly intended to undertake the responsibility of influencing particular

business transactions involving third persons‖ with ―sufficiently specific economic

parameters to permit the [auditor] to assess the risk of moving forward,‖ liability

for negligent misrepresentation may extend to persons ―to whom or for whom the

misrepresentations are made‖ so long as those persons have actually and

justifiably relied on the auditor‘s report. (Id. at pp. 408–409.)

B.

In many ways, the circumstances of the present case stand in contrast to the

concerns in Bily that counseled against general recognition of an auditor‘s duty of

care to third parties. Here we focus on three considerations that drive the analysis

and distinguish this case from Bily: (1) the closeness of the connection between

defendants‘ conduct and plaintiff‘s injury; (2) the limited and wholly evident class

of persons and transactions that defendants‘ conduct was intended to affect; and

(3) the absence of private ordering options that would more efficiently protect

homeowners from design defects and their resulting harms. We then summarize

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this analysis in terms of the Biakanja factors, and we distinguish Weseloh, supra,

125 Cal.App.4th 152, the principal case on which defendants rely. As explained

below, we hold that an architect owes a duty of care to future homeowners where

the architect is a principal architect on the project — that is, the architect, in

providing professional design services, is not subordinate to any other design

professional — even if the architect does not actually build the project or exercise

ultimate control over construction decisions.

1.

First, unlike the secondary role played by the auditor in the financial

reporting process, defendants‘ primary role in the design of the Project bears a

― ‗close connection‘ ‖ to the injury alleged by plaintiff. (Bily, supra, 3 Cal.4th at

p. 401.) According to the complaint, defendants were the only architects on the

Project. In that capacity, defendants ―reviewed and approved the course of action

where the specifications for the exterior windows . . . were changed to a design

that inadequately prevented heat gain, which causes a seriously defective and

nonfunctional condition that is also unhealthy.‖ Defendants also ―recommended

that the number of Z ducts [ventilation ducts] be reduced by a significant quantity,

which is a major factor in the nonfunctional, unhealthy condition [of] the interior

of the units.‖ The complaint alleges that these professional judgments were

negligent and rendered the residential units unsafe and uninhabitable during

certain periods of the year. Compared to ―the connection between the auditor‘s

conduct and the third party‘s injury (which will often be attenuated by unrelated

business factors that underlie investment and credit decisions)‖ (Bily, at p. 402),

the connection between defendants‘ unique role as the design professionals on the

Project and plaintiff‘s damages resulting from negligent design is far more direct

and immediate.

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The trial court assigned dispositive significance to the fact that defendants

did not go ―beyond the typical role of an architect, which is to make

recommendations to the owner,‖ and that ―the final decision rested with the

owner.‖ Similarly, defendants contend that ―they had no role in the actual

construction. Instead, the developer, contractors, and subcontractors retained

primary control over the construction process, as well as final say on how the

plans were implemented.‖

However, even if an architect does not actually build the project or make

final decisions on construction, a property owner typically employs an architect in

order to rely on the architect‘s specialized training, technical expertise, and

professional judgment. The Business and Professions Code defines ―[t]he practice

of architecture‖ as ―offering or performing, or being in responsible control of,

professional services which require the skills of an architect in the planning of

sites, and the design, in whole or in part, of buildings, or groups of buildings and

structures.‖ (Bus. & Prof. Code, § 5500.1, subd. (a); see id., § 5500.1, subd. (b)

[providing a nonexhaustive list of ―[a]rchitects‘ professional services‖].) The

profession is licensed and regulated by the California Architects Board (id.,

§§ 5510, 5510.1, 5510.15, 5526), and the unlicensed or unauthorized practice of

architecture is punishable as a misdemeanor (id., §§ 5536, 5536.1). In order to

practice architecture, an applicant must pass two specialized exams, must

demonstrate eight years of training and educational experience in architectural

work, and must complete an internship program. (Id., §§ 5550, 5551, 5552,

subd. (a); Cal. Code Regs., tit. 16, §§ 116–117.)

In this case, defendants were the principal architects on the Project. Among

all the entities involved in the Project, defendants uniquely possessed architectural

expertise. There is no suggestion that the owner or anyone else had special

competence or exercised professional judgment on architectural issues such as

17

adequate ventilation or code-compliant windows. Just as a lawyer cannot escape

negligence liability to clearly intended third party beneficiaries on the ground that

the client has the ultimate authority to follow or reject the lawyer‘s advice (see,

e.g., Heyer v. Flaig (1969) 70 Cal.2d 223, 226; Lucas v. Hamm (1961) 56 Cal.2d

583, 588), so too an architect cannot escape such liability on the ground that the

client makes the final decisions. An architect providing professional design

services to a developer does not operate in a ―client-controlled environment‖

comparable to the relationship between an auditor and its client. (Bily, supra, 3

Cal.4th at p. 399.) Whereas an auditor‘s ―client, of course, has interests in the

audit that may not be consonant with those of the public‖ (ibid.), it would be

patently inconsistent with public policy to hold that an architect‘s failure to

exercise due care in designing a building can be justified by client interests at odds

with the interest of prospective homeowners in safety and habitability.

Were there any doubt as to defendants‘ principal role in the design of the

Project, it is dispelled by additional facts alleged here. According to the

complaint, defendants not only provided design services at the outset of the

Project but also brought their expertise to bear on the implementation of their

plans and specifications by doing weekly inspections at the construction site,

monitoring contractor compliance with design plans, altering design requirements

as issues arose, and advising the owner of any nonconforming work that should be

rejected — all for a fee of more than $5 million. In other words, defendants

applied their specialized skill and professional judgment throughout the

construction process to ensure that it would proceed according to approved

designs. The work defendants performed does not resemble ―a broadly phrased

professional opinion based on a necessarily confined examination‖ of client-

provided information (Bily, supra, 3 Cal.4th at p. 403), nor did defendants act

merely as ―suppliers of information and evaluations for the use and benefit of

18

others‖ (id. at p. 410). Instead, defendants played a lead role not only in designing

the Project but also in implementing the Project design.

Nor do we find persuasive defendants‘ claim that the connection between

their conduct and plaintiff‘s injury is ―attenuated because . . . when the developer

sold the units two years after construction, it was aware of, and concealed, the

alleged defects.‖ This specific allegation, if true, may inform whether defendants‘

conduct was the proximate cause of plaintiff‘s injury. (See, e.g., Gonzalez v.

Derrington (1961) 56 Cal.2d 130, 134 [―independent, intervening cause‖ may

preclude finding of proximate cause]; 6 Witkin, Summary of Cal. Law, Torts (10th

ed. 2005) § 1214, pp. 590–591.) It also may give rise to a claim of equitable

indemnity by defendants against the developer. (See Evangelatos v. Superior

Court (1988) 44 Cal.3d 1188, 1197–1198; Greystone, supra, 168 Cal.App.4th at

p. 1208.) There is no reason to think in this case or in general that the developer

and other major players have ―left the scene‖ via bankruptcy, as is often the case

with auditor liability suits. (Bily, supra, 3 Cal.4th at p. 400.) But because the

developer‘s alleged misdeeds are themselves derivative of defendants‘ allegedly

negligent conduct, they do not diminish the closeness of the connection between

defendants‘ conduct and plaintiff‘s injury for purposes of determining the

existence of a duty of care.

2.

Second, recognizing that an architect who is a principal provider of

professional design services on a residential building project owes a duty of care

to future homeowners does not raise the prospect of ― ‗liability in an indeterminate

amount for an indeterminate time to an indeterminate class.‘ ‖ (Bily, supra, 3

Cal.4th at p. 385, quoting Ultramares Corp. v. Touche (N.Y. 1931) 174 N.E. 441,

444.) As the complaint here alleges, defendants engaged in work on the Project

with the knowledge that the finished construction would be sold as condominiums

19

and used as residences. There was no uncertainty, as there was in Bily, as to ―the

existence, let alone the nature or scope, of the third party transaction that resulted

in the claim.‖ (Bily, supra, 3 Cal.4th at p. 400.) Defendants‘ work on the Project

―was intended to affect the plaintiff,‖ and ―the ‗end and aim‘ of the transaction

was to provide‖ safe and habitable residences for future homeowners, a specific,

foreseeable, and well-defined class. (Biakanja, supra, 49 Cal.2d at p. 650.) There

is no ―spectre of vast numbers of suits and limitless financial exposure‖ in this

case. (Bily, at p. 400.) Instead, defendants ―clearly intended to undertake the

responsibility of influencing particular business transactions [i.e., condominium

purchases] involving third persons [i.e., prospective homeowners]‖ (id. at p. 408)

and could therefore ―ascertain the potential scope of its liability and make rational

decisions regarding the undertaking‖ (id. at p. 409). Further, as noted, defendants

can limit their liability in proportion to fault through an action for equitable

indemnification.

Defendants point to a provision in the contract with the developer that

expressly disclaims the existence of any ―third-party beneficiary of the obligations

contained in the Agreement.‖ But we have never held that third party beneficiary

status is a prerequisite to alleging negligence. In Bily, we noted only that third

party beneficiaries ―may under appropriate circumstances possess the rights of

parties to the contract‖ (Bily, supra, 3 Cal.4th at p. 406, fn. 16), not that the lack of

such status precludes liability in tort. If anything, the contract provision on which

defendants rely ―only serves to emphasize the fact that [defendants] were more

than well aware that future homeowners would necessarily be affected by the work

that they performed,‖ as the Court of Appeal observed.

3.

Third, the prospect of private ordering as an alternative to negligence

liability is far less compelling here than in Bily. Whereas ―[i]nvestors, creditors,

20

and others who read and rely on audit reports and financial statements are not the

equivalent of ordinary consumers‖ because ―they often possess considerable

sophistication in analyzing financial information and are aware from training and

experience of the limits of an audit report ‗product,‘ ‖ the average homebuyer is

more akin to ―the ‗presumptively powerless consumer‘ in product liability cases.‖

(Bily, supra, 3 Cal.4th at p. 403.) The typical homebuyer ― ‗clearly relies on the

skill of the developer and on its implied representation that the house will be

erected in reasonably workmanlike manner and will be reasonably fit for

habitation. He has no architect or other professional adviser of his own, he has no

real competency to inspect on his own, his actual examination is, in the nature of

things, largely superficial, and his opportunity for obtaining meaningful protective

changes in the conveyancing documents prepared by the builder vendor is

negligible.‘ ‖ (Kriegler v. Eichler Homes, Inc. (1969) 269 Cal.App.2d 224, 228

(Kriegler).) As Chief Justice Traynor said for the court in Connor v. Great

Western Savings & Loan Assn. (1968) 69 Cal.2d 850, ―the usual buyer of a home

is ill-equipped with experience or financial means to discern . . . structural defects.

[Citation.] Moreover a home is not only a major investment for the usual buyer

but also the only shelter he has. Hence it becomes doubly important to protect him

against structural defects that could prove beyond his capacity to remedy.‖ (Id. at

p. 867.)

Defendants contend that plaintiff has options for redress within the bounds

of privity: Plaintiff may seek an assignment of the developer‘s rights against

defendants, or plaintiff may pursue its design defect claims against the developer,

and the developer may in turn seek redress from defendants. But it is questionable

whether this more attenuated form of liability will consistently provide adequate

redress. More importantly, the chief interest of prospective homeowners is to

avoid purchasing a defective home, not only to have adequate redress after the

21

fact. The long-established common law rule holding architects as independent

professionals directly accountable to third party homeowners is most likely to

vindicate that interest.

Moreover, as we recognized in Bily, the sophisticated consumer of audit

reports ―might expend its own resources to verify the client‘s financial statements

or selected portions of them that were particularly material to its transaction with

the client. Or it might commission its own audit or investigation, thus establishing

privity between itself and an auditor or investigator to whom it could look for

protection.‖ (Bily, supra, 3 Cal.4th at p. 403.) But it is unrealistic to expect

homebuyers to take comparable measures. A liability rule that places the onus on

homebuyers to employ their own architects to fully investigate the structure and

design of each home they might be interested in purchasing does not seem more

efficient than a rule that makes the architects who designed the homes directly

responsible to homebuyers for exercising due care in the first place. This seems

especially true in ―today‘s society‖ given the ―mass production and sale of homes‖

(Kriegler, supra, 269 Cal.App.2d at p. 227), such as the 595-unit condominium

project in this case.

4.

For the reasons above, we conclude that the allegations in the complaint are

sufficient, if proven, to establish that defendants owed a duty of care to the

homeowners who constitute the Association. Our conclusion, which coheres with

a substantial body of case law (ante, at pp. 5–10), may be summarized in terms of

the Biakanja factors: (1) Defendants‘ work was intended to benefit the

homeowners living in the residential units that defendants designed and helped to

construct. (2) It was foreseeable that these homeowners would be among the

limited class of persons harmed by the negligently designed units. (3) Plaintiff‘s

members have suffered injury; the design defects have made their homes unsafe

22

and uninhabitable during certain periods. (4) In light of the nature and extent of

defendants‘ role as the sole architects on the Project, there is a close connection

between defendants‘ conduct and the injury suffered. (5) Because of defendants‘

unique and well-compensated role in the Project as well as their awareness that

future homeowners would rely on their specialized expertise in designing safe and

habitable homes, significant moral blame attaches to defendants‘ conduct. (6) The

policy of preventing future harm to homeowners reliant on architects‘ specialized

skills supports recognition of a duty of care. Options for private ordering are often

unrealistic for typical homeowners, and no reason appears to favor homeowners as

opposed to architects as efficient distributors of loss resulting from negligent

design.

Defendants contend that the balance of Biakanja factors is no different in

this case than in Weseloh, supra, 125 Cal.App.4th 152, where the court found no

duty of care owed by a design engineer to the third party owner of commercial

property. But the defendants in Weseloh played a materially different role in the

construction project than defendants did here.

In Weseloh, a property owner (Weseloh) contracted with a general

contractor (Wessel) to build an automobile dealership on the property. A

subcontractor, Sierra Pacific Earth Retention Corporation (Sierra), built the

retaining walls for the project. Sierra, in turn, enlisted Charles Randle, an

employee of Owen Engineering Company (Owen), to design two retaining walls

for a fee of $1,500 or $2,200. Neither Randle nor Owen had a contractual

relationship with Weseloh, and neither supervised the construction of the retaining

walls. At Sierra‘s request, Randle and Owen inspected the retaining walls after

construction. When a portion of the retaining walls failed, resulting in $6 million

of property damage, Weseloh sued Wessel, Sierra, and Randle and Owen.

Weseloh entered into a settlement agreement with Wessel and Sierra, but the suits

23

against Randle and Owen went forward. On summary judgment, the trial court

concluded that Randle and Owen owed no duty to Weseloh, and the Court of

Appeal affirmed. (See Weseloh, supra, 125 Cal.App.4th at pp. 158–162.)

As suggested by the size of their fee, the defendants in Weseloh had a

limited role in the construction project. The ―undisputed evidence‖ showed that

―neither Randle nor Owen had a ‗role in the construction‘ of the retaining walls.‖

(Weseloh, supra, 125 Cal.App.4th at p. 164.) In addition, although ―Randle was

aware the property was owned by Weseloh,‖ the Court of Appeal found it

significant that Randle and Owen provided their services to Sierra, another

engineering firm. As the court observed, ―the earth retention calculations prepared

for Wessel . . . identified the preparer as [Sierra], not Randle or Owen. This

evidence bolsters the position that Randle and Owen‘s role in the project was to

primarily benefit Sierra as the preparer of the calculations. To the extent Randle

and Owen‘s participation in the project would also benefit Wessel and the

Weseloh plaintiffs, it was only through Sierra.‖ (Id. at p. 167; see id. at p. 171,

fn. 5 [noting that Sierra paid $1.2 million of the alleged $6 million liability under

the settlement agreement].)

The circumstances in this case are plainly different. Unlike Randle and

Owen, whose work informed their client‘s own exercise of technical expertise in

preparing earth retention calculations, defendants here were the sole entities

providing architectural services to the Project. They did not provide their

specialized services to a client or other entity that in turn applied its own

architectural expertise to the plans and specifications supplied by defendants.

Moreover, defendants not only applied their expertise to designing the Project but

further applied their expertise to ensure that construction would conform to

approved designs. Weseloh, which expressly limited its holding to its facts

(Weseloh, supra, 125 Cal.App.4th at p. 173), does not stand for the broad

24

proposition that a design professional cannot be liable in negligence to third

parties so long as it renders ―professional advice and opinion‖ (id. at p. 169)

without having ultimate decisionmaking authority. Instead, Weseloh merely

suggests that an architect‘s role in a project can be so minor and so subordinate to

the role or judgment of other design professionals as to foreclose the architect‘s

liability in negligence to third parties.

Moreover, the Weseloh court, reviewing the case at the summary judgment

stage, concluded that the plaintiffs had ―failed to produce evidence showing how

and the extent to which their damages were caused by the asserted design defects.‖

(Weseloh, supra, 125 Cal.App.4th at p. 168.) The court also noted the absence of

evidence that ―Sierra actually used Randle and Owen‘s design without alteration

in constructing the retaining walls.‖ (Ibid.) These observations regarding lack of

causation not only informed Weseloh‘s duty analysis (see id. at pp. 168–169) but

also provided an independent basis for granting summary judgment in the

defendants‘ favor. In the present case, which is before us on demurrer, no similar

causation problem confronts us. According to the complaint, defendants approved

the use of defective windows and designed a defective ventilation system, all of

which created conditions that made the homes uninhabitable for portions of the

year. The complaint sufficiently alleges the causal link between defendants‘

negligence and plaintiff‘s injury that was lacking in Weseloh.

IV.

For the reasons above, we conclude that the trial court erred in sustaining

defendants‘ demurrer on the ground that they owed no duty of care to the

25

Association‘s members. Because the Court of Appeal correctly reversed the trial

court‘s judgment, we affirm the Court of Appeal‘s judgment.

LIU, J.

WE CONCUR: CANTIL-SAKAUYE, C. J.

BAXTER, J.

WERDEGAR, J.

CHIN, J.

CORRIGAN, J.

RICHMAN, J.*

* Associate Justice, Court of Appeal, First Appellate District, Division Two,

assigned by the Chief Justice pursuant to article VI, section 6 of the California

Constitution.

26

See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Beacon Residential Community Association v. Skidmore, Owings & Merrill LLP

__________________________________________________________________________________

Unpublished Opinion

Original Appeal

Original Proceeding

Review Granted XXX 211 Cal.App.4th 1301

Rehearing Granted

__________________________________________________________________________________

Opinion No. S208173

Date Filed: July 3, 2014

__________________________________________________________________________________

Court: Superior

County: San Francisco

Judge: Richard A. Kramer

__________________________________________________________________________________

Counsel:

Law Offices of Ann Rankin, Ann Rankin, Terry L. Wilkens; Katzoff & Riggs, Kenneth S. Katzoff, Robert

R. Riggs, Sung E. Shim and Stephen G. Preonas for Plaintiff and Appellant.

Berding & Weil and Matt J. Malone for Consumer Attorneys of California and Executive Council of

Homeowners as Amici Curiae on behalf of Plaintiff and Appellant.

Horvitz & Levy, Peder K. Batalden and Peter Abrahams for Defendants and Respondents Skidmore,

Owings & Merrill LLP, and HKS, Inc.

Robles, Castles & Meredith and Richard C. Young for Defendant and Respondent Skidmore, Owings &

Merrill LLP.

Schwartz & Janzen, Noel E. Macaulay and Steven H. Schwartz for Defendant and Respondent HKS, Inc.

Fred J. Hiestand for the Civil Justice Association of California as Amicus Curiae on behalf of Defendants

and Respondents.

Shannon B. Jones Law Group, Kathleen F. Carpenter, Jessica M. Takano and Amy R. Gowan for

California Building Industry Association as Amicus Curiae on behalf of Defendants and Respondents.

Collins Collins Muir + Stewart, David E. Barker and Melinda W. Ebelhar for The American Institute of

Architects California Council and The American Institute of Architects as Amici Curiae on behalf of

Defendants and Respondents.

Counsel who argued in Supreme Court (not intended for publication with opinion):

Robert R. Riggs

Katzoff & Riggs

1500 Park Avenue, Suite 300

Emeryville, CA 94608

(510) 597-1990

Peter Abrahams

Horvitz & Levy

15760 Ventura Boulevard, 18th Floor

Encino, CA 91436-3000

(818) 995-0800